Ownership Transition

Non-Statutory Deferred Compensation Plans

In structuring a long-term strategic ownership transition plan for a professional design firm, among the many key considerations is the overall affordability of the plan for the firm, its owners and key employees. The retirement horizon of the firm’s current owners, the growth of the firm’s practice and the financial condition of the firm all impact the plan’s affordability for those integrated in the firm’s long-term strategic ownership transition plan. In addition, professional licensing statutes in various states often preclude non-licensed key employees from participating in the firm’s internal ownership plan.

Non-statutory deferred compensation plans are often used as a vehicle to enhance the affordability of an internal ownership transition plan based on the specific facts and circumstances. In addition, deferred compensation plans can also provide non-licensed key employees with all of the risks and rewards of ownership even if they are precluded from legally owning an interest in the firm. Such plans can take the form of phantom stock plans, stock appreciation rights (SARs) and other types of bonus plans.

The American Jobs Creation Act of 2004 created new Internal Revenue Code Section 409A which has radically changed the world of nonqualified deferred compensation. This new statute has created a new starting place for structuring nonqualified deferral and retirement plans but has not necessarily reduced their use or flexibility, except to the extent that aggressive planning will be discouraged by the severity of the penalties for noncompliance with the law. As a result, extreme care and careful planning must be undertaken to ensure that deferred compensation plans utilized in connection with design firm ownership transition are in compliance with Internal Revenue Code Section 409A.

The principals at Dannible/McKee and Associates, Ltd. are experts in the use of non-qualified deferred compensation in connection with key employee compensation and/or ownership transition in design firms. We can assist you in evaluating the effectiveness of such plans with the circumstances unique to your firm and provide you with ongoing guidance throughout your firm’s transition process.

From Our Clients

Hiring Dannible/McKee & Associates to develop our succession plan was one of the best decisions I've ever made. I was sole owner of an 8 person engineering firm in need of an exit strategy, but without the first clue how to proceed. It took a lot of hard work and a lot of guidance from Dannible/McKee, but at the end of the first year under the plan my income was higher than in any previous year - as a 60% owner no less. Five years later our plan has stood the test of time and I continue to marvel at the insightful brilliance of the plan.